SBC stake in Yorkshire fuels bid speculation

Swiss Bank Corporation has bought 8.2 per cent in Yorkshire Electricity, raising speculation that there will be a bid for the company, one of the largest regional electricity firms in England and Wales.

SBC already has 3 per cent of the shares in Northern Electric and is also acting on behalf of Trafalagar House, the conglomerate which in December launched a £1.2bn hostile bid for Northern.

SBC holds the Yorkshire Electricity shares as a market maker, exempting it from automatic disclosure. It was flushed out when Yorkshire sent a 212 notice under the Companies Act, enabling it to find out who was the owner of the stake. City analysts now expect to see a rush of notices from other regional electricity firms.

There is view in the market that SBC is building up a portfolio of holdings in the electricity firms in anticipation of a bid bonanza when the Government's special share in the companies expires at the end of March.

Northern Electric also announced yesterday that it served a 212 notice, confirming that SBC holds 3.46 per cent of its shares.

Yorkshire announced the SBC holding, worth about £130m, because of speculation about mergers and acquisitions in the sector. It also wished to make the stake public in advance of an extraordinary meeting, planned for Friday, to approve a special dividendannounced at the end of December. The dividend of 90p per share will benefit SBC to the tune of £15.3m.

Some City analysts believe SBC has bought the shares to hedge against potential costs related to the Northern Electric bid. Trafalgar House and SBC are thought to have agreed a form of remuneration that would hit SBC if Northern's share price rises abovea certain level. Buying into another stock in the sector would cushion SBC against price movements.

One industry source said, however, that the stake in Yorkshire is so high that it must have been taken in order to offer it to potential predators. Yorkshire's board will also be mindful that the company's franchise area is adjacent to that of Northern Electric, which could make the company attractive to Trafalgar House.

Malcolm Chatwin, chief executive of Yorkshire Electricity, was unavailable for comment. However, a spokesman said: "We have been told that the shares are not held on behalf of anyone. We maintain a keen interest on what SBC will do with 8 per cent of ourshares."

Separately, South Western Electricity said it has bought back a further 5 per cent of its shares. It received permission from shareholders last August to buy back up to 10 per cent of the shares, a level now reached. Many of the regional companies are using buybacks to return value to shareholders, although some have opted to award a special dividend.

Events at Yorkshire Electricity will increase pressure on the Government to take a stance on mergers in the industry.

Jack Cunningham, shadow trade and industry secretary, has already called for a Monopolies and Mergers Commission investigation into the bid for Northern Electric. Earlier this week he attacked Michael Heseltine, President of the Board of Trade, for his silence since the bid was launched. He said the lack of any statement from Mr Heseltine could be construed as a green light for other companies to come in and take control of regional electricity firms.

Tim Eggar, minister for energy and industry, has said the Government does not intend to waive its special share until the expiry date at the end of March, ruling out any takeover until that date. He has declined to give his views on the merits of the bid.

Developments at Yorkshire are being watched closely by Northern Electric, which has also been told by SBC that it holds its 3 per cent of the company as a market maker despite its role as adviser to Trafalgar House.

Northern's submission to the industry regulator, Offer, next week will argue that Trafalgar would not be a suitable owner of a regional electricity firm.